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Income Tax Act 2007

Taxation of certain entities - Other entities

HR 11: Non-exempt charities: initial tax base

You could also call this:

“How a charity's assets and expenses are valued when it loses its tax-free status”

This section applies when you stop being a charity that doesn’t have to pay tax. From the day you stop being a tax-free charity, here’s what happens:

The value of your buildings, equipment, and things you sell is set at what it would have been if you were never a tax-free charity. This is important for working out your taxes.

For any financial agreements you have, there’s a special way to work out their value. You add up the money you were paid and the costs you would have had if you weren’t tax-free. Then you take away the money you paid out and the income you would have made if you weren’t tax-free.

You can also claim some costs that you paid for in advance, like rent or insurance. You can claim these in the same year that you stop being a tax-free charity.

If you need information to work this out, you can use the details from your charity’s yearly reports that are kept by the government.

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View the original legislation for this page at https://legislation.govt.nz/act/public/1986/0120/latest/link.aspx?id=DLM6200526.

Topics:

Money and consumer rights > Taxes

HR 10: What happens when vehicle stops being transparent debt funding special purpose vehicle?, or

“Changes when a debt funding vehicle loses its special status”

HR 12: Non-exempt charities: treatment of tax-exempt accumulations, or

“Tax rules for charities that lose their registration”

Part H Taxation of certain entities
Other entities

HR 11Non-exempt charities: initial tax base

This section applies on and after the day that a person ceases to meet the requirements to derive exempt income under section CW 41 or CW 42 (which relate to charities) (the date of cessation).
For the purposes of this Act, for the person, the cost of premises, plant, equipment, and trading stock is the value that would be used at the date of cessation under this Act if section CW 41 or CW 42 never applied.
For the purposes of this Act, the consideration for a financial arrangement of the person is the value calculated using the following formula:
$consideration paid to person + expenditure− consideration paid by person − income.$

Where:
In the formula,—
consideration paid to person is the consideration that is paid to the person before the date of cessation:
expenditure is the expenditure that would have been incurred under the financial arrangements rules before the date of cessation:
consideration paid by person is the consideration that is paid by the person before the date of cessation:
income is the income that would have been derived under the financial arrangements rules before the date of cessation.

For the purposes of this Act, the person is treated as having the unexpired portion of expenditure under section EA 3 (Prepayments) and the unpaid amount under section EA 4 (Deferred payment of employment income) that the person would have had if section CW 41 or CW 42 never applied. The unexpired portion is available for deduction under sections DB 50 and DB 51 (which relate to deductions) in the income year that contains the date of cessation.
For the purpose of applying this section, the person may use information from their annual returns contained on the register of charitable entities under the Charities Act 2005, if they have no other information that is more readily available.

Notes

Section HR 11: inserted (with effect on 14 April 2014), on 30 June 2014, by section 128 of the Taxation (Annual Rates, Employee Allowances, and Remedial Matters) Act 2014 (2014 No 39).